Flournoy v. Widmann

Opinion

KINGSLEY, J. Appellant Widmann, executrix of the estate of Gregory Koerner, appeals from two orders fixing inheritance tax. In fixing the tax on the shares which appellant and her brother inherited as residuary beneficiaries, the court determined that their shares included that portion of the estate used to pay federal estate taxes on decedent’s estate.

The residue of the estate was given equally to appellant and her brother, and the will also provided that all federal estate taxes were to be paid out of the residue. The federal estate tax was $734,666.90, the residue of decedent’s estate after payment of federal estate taxes was $1,462,497.76, .and the referee treated each residuary beneficiaiy as having received one-half of the residue of the estate before payment of federal estate taxes. In fact each residuary beneficiary received a smaller sum than used by the referee to compute inheritance tax, because the payment of the federal estate tax reduced the residue by a substantial amount.

Appellant objects that the court erroneously included the sum of money used to pay federal estate taxes in determining the amount of money transferred to the residuary beneficiaries, for the purpose of fixing the state inheritance tax.

[450]I

Appellant’s first argument is that the portion of decedent’s estate required to pay federal estate taxes cannot be regarded as property that was “transferred” to the beneficiaries’ estate within the meaning of Revenue and Taxation Code sections 13304 and 13401. Section 13401 imposes the inheritance tax “on every transfer” and section 13304 of the code definés “transfer” to include “the passage of any property, or any interest therein or income therefrom, in possession or enjoyment, present or future, in trust or otherwise.” Appellant argues that the money used to pay the federal tax never was actually “transferred” to the residuary beneficiaries, within the meaning of the above definition and therefore those funds cannot be included in the determination of state inheritance taxes.

We do not agree. Appellant construes the term “transfer” of “property” too narrowly. The residuary beneficiary need not actually receive the funds to be taxed on those funds. “It is the privilege of receiving and neither the property itself nor the actual receiving of it which is taxed.” (Estate of Varian (1968) 264 Cal.App.2d 248, 252 [70 Cal.Rptr. 335].) In the case at bench, the fact that the residuary beneficiaries did not actually receive the money in question, because that money in a sense had to be “spent” to pay federal estate taxes, does not negate the fact that that money was “transferred” to the beneficiary, however ephemeral and intangible that “transfer” may be characterized in a practical economic sense. Transfer means the present passing of property, without regard to whether actual possession and enjoyment follow immediately or come at some future time. (See In re Hoffman’s Estate (1894) 143 N.Y. 327 [38 N.E. 311].) In the instant case the money was “transferred” to the residuary beneficiaries in the legal sense, although actual possession of the money was, perhaps, immediately removed by the directive that the federal estate taxes be paid out of the residue.